Updated: May 15
Africa was hit by the novel COVID-19 virus just a few months after the Chinese; United States and European states. “It just came”, this is how it is viewed by the ordinary African citizen, but what does it mean for Africa? What does it mean for the property sector, the retail market, with a bit of insight on the commercial tenants? Africa seems to be suppressing the curve so far as per the word in the market, but still control measures have to be put in place to protect people from the seemingly life-threatening disease. Africa has an option either to die of this virus or hunger. Africa what is your take?
I mean, for now, let’s have a fair eagle’s eye view on this. Let’s talk about businesses specifically and the intricate issues around the survival thereof. Let’s say we pick, property owners and their tenants, but let us narrow it down to the retail market and dwell on a few industry drivers. This is the new world that we have just walked into. Things are not changing but they have changed and drastically, continuously. Some countries are less battered than others, but a question that comes to mind is, is there global capital flow and can businesses survive this? Can global capital still flow to Africa and be used efficiently and effectively. What strategies can small and medium enterprises start looking at to survive this? I mean frankly, giants are falling, but is this an opening for new entrants or just for the survivors? So many questions and the dire need for solutions.
It’s a very emotional period for businesses. Yes emotions, let’s leave the “do not put emotions into business” phrase for now. Because this has been. Company executives have been forced to make very difficult decisions in these circumstances, and in most cases, change their business lives forever. Doors are closing for some businesses, not just for this period but tomorrow, post COVID-19 and some forever. Realistically it is a very trying time for businesses. Some even say, there is still a possibility of recurrence of this virus maybe next year or ten years’ time, who knows. How do businesses prepare themselves for the future? When COVID-19 came, most businesses just found themselves stumbling into big and dark patches of earth. They found themselves in a ditch, faced with tough decisions on salary payments, supplier logistics, rent and other expenses, with zero or less turnover, negotiate rental discounts or deferment. Business relationships have been tested within and outside organizations. Everyone is in this situation and a huge consideration on the impact therein as well as negotiation terms, have to be given cautiously by both parties.
Differential costs and revenue analysis has become an increasingly growing integral, pivotal and strategic business point for most businesses as if it never was. Companies are faced with choices between good and bad costs. Think about the choices between fancy offices vs. virtual offices or simply hot sitting? Overworked department’s vs. the lesser? Redistribution of workload? Centralization vs. decentralization of business? Up or down-scaling production lines?
Now, let’s take out emotions and consider this, core vs. non-core business lines, keep or lose them? Companies might be forced to cut out non-economic spending or adapt to strictly managed spending. Should companies consider a lean team for the future of the business? Are current business processes sustainable? These questions, just to name a few, are an inescapable push for businesses to relook at their strategies for survival.
Consumer spending is the major driver for global economic growth, however facing a huge web of disruption,thus as seen, spending patterns have changed. This pandemic has caused a major turbulence across all industries. Consumer discretionary spending patterns have become increasingly depressed hence their choices or priorities have changed, however with some businesses benefiting from this. In overall, the increase in spending patterns in different channels is nothing close to the reduction in total spending. With the huge uncertainty, the future consumer has been forced pinch pennies and relook at their spending priorities.
Some of the hardest hit in this pandemic are fashion/Apparel; transport services and luxury goods retailers as consumers do away with discretionary purchases in favor of stocking up on food and household supplies. The drastic changes in consumer behavior has mostly been triggered by changes in income; unemployment and/or unpaid employment. This has forced some consumers to realize the ‘do away with” goods and in reality, their previous reckless spending patterns. However, there still exist the reality of a new binge patterns which have seen to benefit industries such as entertainment and Health and safety.
Grocery stores seem to have won some trading platform with increases in product demand but for some, at higher costs of operations relative to turnover. The impact on the supply chain logistics, putting into perspective the lead time and inventory warehousing, has to be considered with the huge and dynamic shifts in demand. The demand may also shift to online stores more than before and a consideration may be required on the distribution channels of their goods to the consumer. Some supplier have been left with fast running stock levels and some large holding stock levels, and also a difficult case on perishable vs. non-perishable goods. Self-service stores and contactless payments might arise in some areas which brings along relative rising demand of capital reserves for endless digital transformation efforts.
The consumer might not necessary shift back to previous habits and trust they placed on their environment. The market is continuously shifting and requires round table discussions between retailers and their key suppliers, to identify and assess the present and possible future direct and indirect risks, hence create a contingency plan. Its survival of the fittest.
One of the most important controls put in place in this stormy period of COVID-19, is social distancing. This has hit hard on some businesses such as Transport and travel which accounts for about 10% of the Global GDP. Although some transport businesses have seen savings in travel time and reduction in lost man hours, the significant drop in demand is greater than the savings.Transport for essential products such as fuel as an example, has seen a very low demand hence significant drop on related transport business. Consumer movement has been restricted, however as restrictions are lifted there is possibility of rebuild of demand on certain goods and services like clothing and transport. Can these businesses make a full come back and if possible,how soon?
Let’s observe the Apparel industry with the restriction controls in place. The plan and dynamics of changing seasons, predictions, production and stock holding. This industry has to speed from one season to the next with consumers holding back or restricted from spending on these goods in the physical shops. Production levels had to be reduced for the ending season. What does the future hold? How much to produce?
The future is uncertain and most industries will have to face the harsh reality of repositioning themselves in the face of the consumer. While consumer confidence has fallen, there still exist pockets of sentimental optimism in African consumers about the future. African countries that has been in lock-down, for example South Africa, have seen loosening of restraints on some industries but in tranches or various levels, however the future is still uncertain.
Inequality amongst consumers have sharpened. Government need strategies and additional focus on the health and welfare of the community. The less fortunate are crying to the government for help and survival. Hunger might kill us before the virus does. Government spending has escalated, how will this impact the taxes? Just to touch on a few. Some of the measures the government in putting in place may transfer to permanent measures which require additional future spending. Are they prepared for this?
The big question is who will survive and how? Some businesses saw it coming or rather were likely prepared for the unforeseen future, but how long can they survive this with their reserves and strategies? There is also a growing question on the new entrants as well. How are they penetrating the market taking advantage of the COVID-19 wrapped economy? What are now the basic commodities? Some apparel businesses have adapted to masks, integrating it to their fashion lines. But will that keep them afloat. The mask business have seen a boom but with non-regulated pricing. There is huge competition in the “mask industry”but is the demand and supply enough? Are consumers going to adapt to new brands and channels? What will the new entrants bring? There is high risk of loyalty shock as the consumer take into consideration different ration such as health and safety; entertainment etc.
Talking about entertainment, let’s take a dive into the digital technology platform. Is the future tech? There is a predictive extreme acceleration in the digital economy, not just for home entertainment but for businesses as well. For example some tech and video conferencing businesses, have seen exponential increase in usage. More companies may possibly realize the reality of the ‘working from home culture’ or virtual offices and the impact on their business process and strategies.
Unemployment may increase with realization of work redundancy at the same time some businesses are likely to take in new teams in search for expertise and survival in seasons like these. Competition is increasingly intense in all shades of the business. Some companies, like a lion waiting to devour its prey, had no choice but decided to play the waiting game from the sidelines, however is it sustainable? Consumer sentiments have changed. Some companies have just decided to pull the plug. What impact does this have on Africa based businesses and how can they survive?
At this point in time, the ability to adapt responsively to product, services, workforce, strategic business partners and stakeholders, financial and operational needs will separate the winners and losers during this crisis. It’s time to think through the long term implications and become increasingly adaptable to the change. Situations are changing daily and there is very little time to respond. Some changes are temporary but most will be permanent. Is your Business ready? Africa, are you ready?
“Only when the tide goes out do you discover who's been swimming naked”
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